Talking Points:

ECB Stress Tests Pass with Little Fanfare, Bond Purchase Data Next on Tap
US Dollar Pressured as Markets Look Ahead Toward FOMC Announcement
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The release of ECB bank stress test results over the weekend had a feeble impact on the Euro as markets came online in Asia. The exercise showed that 25 of the 130 major Eurozone banks failed the tests as of December 2013 but have since mostly remedied the situation, with only €10 billion in cumulative shortfall left outstanding. The offending banks will now a have a hefty nine months to get up to snuff.

The outcome offered a bit of a lift to risk appetite early in the overnight session, with the safety-linked Japanese Yen lower and the sentiment-geared Australian Dollar higher. The single currency would not see substantive activity until a broad-based anti-USD rally later in the day (see below). The tepid reaction might have been expected considering the results’ limited impact on near-term ECB policy. Indeed, with asset purchases just getting underway and another TLTRO operation pending, Mario Draghi and company will probably stay in wait-and-see mode through the rest of the year.

The Eurozone monetary authority continues to dominate the spotlight in the hours ahead as it reports the size of last week’s first round of covered bond purchases. Newswires polling unnamed “traders” suggested the ECB took in at least €800 million. At that rate, the central bank would take in a meager €3.2 billion per month, putting a dreadfully long timeline on Mr Draghi’s plan to expand the balance sheet by €1 trillion even as ABS purchases begin to run concurrently later this quarter as compared to the Fed’s analogous efforts. A relatively larger take-up may weigh on the Euro but offer a lift to risk appetite on hopes that an aggressive effort will help check the slide in global growth. Needless to say, a lower figure stands to yield the opposite dynamic.

The US Dollar underperformed in overnight trade, sliding as much as 0.2 percent on average against its leading counterparts. The move may have pre-positioning ahead of this week’s much-anticipated FOMC monetary policy announcement. Priced-in expectations for the first Fed interest rate hike have been pushed back from mid-2015 to early 2016 over recent weeks and traders will look for validation of the dovish outlook shift in the central bank’s policy statement.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

23:50

JPY

Corporate Service Price (YoY) (SEP)

3.5%

7:00

AUD

RBA’s Ellis Speaks at AHURI Roundtable

–

European Session

GMT

CCY

EVENT

EXP

IMPACT